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At 12:01 A.M. on May 10, U.S. tariffs on Chinese goods worth $200 billion increased from 10% to 25%. Negotiators from both sides met in Washington but failed to reach an agreement, placing both countries on a collision course on trade. On its part, Beijing promised to implement countervailing measures in response to the hike in U.S. tariffs.

Predictably, U.S. markets continued to plummet downward on May 9 with the Nasdaq and the S&P 500 finishing in the red for the fourth straight session. While Trump continues to hold out hope for a deal, political commentators and market analysts on both sides of the Atlantic believe a near-term truce is unlikely.

Safer equity categories, such as consumer staples, have a clear edge in such circumstances. The stability and superior dividends they provide are common to most other defensive options. This is why it makes sense to add consumer staples stocks to your portfolio at this time.

U.S. Accuses China of Backtracking, Hikes Tariffs

News that tariffs on Chinese goods would be hiked first emerged on May 5 following a tweet from President Trump. Alleging that China had gone back on key promises made during earlier rounds of talks, Trump declared that the prevailing tariffs would be hiked starting May 10.

On May 6, U.S. Trade Representative Robert Lighthizer claimed that “an erosion in commitments” was visible on the part of China. His views were echoed by Treasury Secretary Steven Mnuchin. Together, these key members of the Trump administration announced that tariffs on Chinese imports would be raised on May 10.

China Continues Negotiations, Promises Retaliation

Speaking at a rally in Florida on May 8, Trump claimed China “broke the deal” during ongoing trade negotiations. Despite the tough stand taken by the White House on trade issues, Vice Premier Liu He flew into Washington for the next round of trade negotiations.

However, both sides were unable to seal a deal as of the night of May 9. As tariffs came into effect at midnight on Friday, Beijing pledged that it would take “necessary countermeasures.” But Chinese authorities stopped short of specifying what measures it would go on to implement.

Why is a Near-Term Deal Unlikely?

According to Reuters, late on the night of May 3, Washington received a draft trade agreement from Beijing which excluded most of the Trump administration’s key demands. In doing so, China stepped back from crucial commitments to change domestic laws in order to address core U.S. concerns.

These concerns include forced technology transfers, currency manipulation and intellectual property rights. On May 8, a spokesman for China’s foreign ministry stated that differences of opinion on trade issues were part of the “process of negotiation.” He went on to claim that China was not “avoiding problems.”

Accommodating most of these core concerns would require China to change several domestic laws, which is a complicated and long-winded process. This is why it is unlikely that the Chinese vice premier will be able address the Trump administration’s concerns in the near term, setting the stage for a protracted trade battle.

Our Choices

With tariffs going up on Chinese imports, the stage is set for a long-running U.S.-China trade war. There is sufficient evidence to indicate that Trump’s latest announcement is not a mere negotiating tactic. Instead, it stems from outrage over China’s reluctance to address key U.S. concerns.

In such circumstances, defensive options, such as consumer staples become the natural choice for most investors. They offer both stability and strong dividend yields. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.

Unilever PLC is a London-based FMCG company with worldwide operations.

Unilever has a Zacks Rank #1 (Strong Buy) and VGM Score of A. The company has expected earnings growth of 3.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.7% over the past 30 days. The stock has a dividend yield of 3.1%.

General Mills Inc. is a global manufacturer and marketer of branded consumer foods sold through retail stores.

General Mills’ expected earnings growth for the current year is 1%. The Zacks Consensus Estimate for the current year has improved by 1.9% over the past 60 days. The stock has a dividend yield of 3.9% and currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sysco Corporation markets and distributes a range of food and related products primarily to the foodservice or food-away-from-home industry.

Sysco has a Zacks Rank #2 (Buy) and VGM Score of A. The company has expected earnings growth of 11.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.9% over the past 30 days. The stock has a dividend yield of 2.1%.

Kimberly-Clark Corp. is principally engaged in the manufacture and marketing of a wide range of consumer products around the world.

Kimberly-Clark has a Zacks Rank #2. The company has expected earnings growth of 0.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.1% over the past 30 days. The stock has a dividend yield of 3.3%.

Ambev S.A. is a producer, distributor and seller of beer, carbonated beverages and food products in the Americas.

Ambev has a Zacks Rank #2. The company has expected earnings growth of 13.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.8% over the past 60 days. The stock has a dividend yield of 2.8%.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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